Let's Prevent 8.5 Million Seniors From Experiencing Downward Mobility

When people ask me what I mean when I warn a retirement crisis is coming, I give them one number: 8.5 million. That’s how many older workers and their spouses will experience downward mobility in retirement if we do not act soon.

Who are the endangered 8.5 million? These are working people nearing retirement age (age 50-60) earning above $31,260 for couples or $23,340 for singles, which is twice the official federal poverty level, a common standard used to measure chronic deprivation.

But because of inadequate pensions and low Social Security benefits, they will be poor and near poor when they retire at age 62 (most people, except the highly educated, retire at about 62 or 63.) 8.5 million people will be downwardly mobile because they will experience a decline in their living standards from middle class to poor or near-poor status.

Downward mobility can have political consequences, fueling anger and desperation, and the rise of elders in poverty is a humanitarian crises.

You probably heard “blame the victim”-type explanations for why people don’t have enough retirement savings, including workers spend too much; they are too short sighted, and retire too early. However, our problem is not that humans are flawed, but that the flawed system is not built for the humans we have.

Historically, many families could count on workplace pension plans. But today, less than half of workers not have access to any kind of savings plans at work, not a 401(k), traditional pension, nothing. Even workers with coverage through an employer-sponsored 401(k) cannot adequately grow their savings due to market volatility and predatory fees and job changes and job changes and other life events. The system doesn’t match up with the real lives of workers, no wonder the median older workers only has $15,000 saved for retirement.

Working longer, alone, won’t allow older workers to bridge the gap. Delaying retirement as a solution depends on older workers being able to physically and mentally continue working and crucially employers willing to hire them.

Our research found that, instead of technology making the workplace less physically and mentally demanding, technology has made speed-up more possible. Older workers, especially older women and black workers, face physically and mentally challenging on-the-job requirements: intense concentration, keen eyesight, and bending and stooping.

Headline elder unemployment rates at dizzyingly lows, about 3.2%. But hidden elder joblessness is workers much higher; over 3 million older workers trapped in hidden unemployment include those working part time, but want full time work, and those who want a job and who have stopped looking for full-time. The real unemployment rate is over 7 percent. An the labor market isn’t great. In the last quarter of 2017, 15% of older workers with college degrees were paid less than $15 an hour. And despite recent news article heralding the end of wage stagnation, wages for older working women are falling.

Mandatory add on accounts to Social Security, called Guaranteed Retirement Accounts (GRAs), paid for by contributions from employers and employees and targeted refundable tax credits give every worker an individual retirement account. This account is pooled with other workers’ investments, professionally-managed, with guaranteed principal. With a progressive, refundable tax credit for all workers, lower-income workers can save for retirement without pinching pennies.

Working longer, cutting back on little luxuries - these are not going to save middle class workers from falling into poverty in old age. The risk of being poor or near-poor is exactly that: a risk. To protect ourselves and each other from this risk, we need structural reform.

I joined The New School in 2008 after 25 years as a professor of economics at the University of Notre Dame. My recent book, co-authored with Blackstone's Tony James and titled, Rescuing Retirement, charts a visionary, bipartisan, and simple path to solving the retirement cr...